U.S. patent number 7,487,123 [Application Number 09/382,907] was granted by the patent office on 2009-02-03 for computer-implemented securities trading system with virtual currency and virtual specialist.
This patent grant is currently assigned to CFPH, LLC. Invention is credited to Michael R. Burns, Timothy M. Keiser.
United States Patent |
7,487,123 |
Keiser , et al. |
February 3, 2009 |
Computer-implemented securities trading system with virtual
currency and virtual specialist
Abstract
A computer-implemented financial management system provides the
trading of securities via a network using virtual currency. A
server computer receives buy and sell orders for derivative
financial instruments from a plurality of client computers. The
server computer attempts to match the buy and sell orders and then
generates a market price through the use of a virtual specialist
program executed by the server computer. The virtual specialist
program responds to an imbalance in the matching of the buy and
sell orders. The virtual currency accumulated by HSX account
holders as a result of successful trading may be converted to
another currency, credited toward the cost of merchandise provided
through a vendor's web site, etc.
Inventors: |
Keiser; Timothy M. (Los
Angeles, CA), Burns; Michael R. (Los Angeles, CA) |
Assignee: |
CFPH, LLC (New York,
NY)
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Family
ID: |
40298148 |
Appl.
No.: |
09/382,907 |
Filed: |
August 25, 1999 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
Issue Date |
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09184571 |
Nov 2, 1998 |
6505174 |
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08620906 |
Mar 25, 1996 |
5950176 |
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Current U.S.
Class: |
705/37; 705/35;
705/36R |
Current CPC
Class: |
G06Q
40/00 (20130101); G06Q 40/04 (20130101); G06Q
40/06 (20130101) |
Current International
Class: |
G06Q
99/00 (20060101) |
Field of
Search: |
;705/37,35,36,1,36R |
References Cited
[Referenced By]
U.S. Patent Documents
Foreign Patent Documents
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3539545 |
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Jul 1986 |
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DE |
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WO 93/10503 |
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May 1993 |
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WO |
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WO 96/41315 |
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Dec 1996 |
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WO |
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WO98/58333 |
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Dec 1998 |
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WO |
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WO01/16825 |
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Mar 2001 |
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WO |
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WO01/39056 |
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May 2001 |
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WO |
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Primary Examiner: Robinson Boyce; Akiba K
Attorney, Agent or Firm: Papageorgiou; Antonio
Parent Case Text
This application is a continuation-in-part of U.S. application Ser.
No. 09/184,571, filed Nov. 2, 1998 now U.S. Pat. No. 6,505,174
which is a continuation-in-part of U.S. application Ser. No.
08/620,906, filed Mar. 25, 1996 now U.S. Pat. No. 5,950,176.
Claims
What is claimed is:
1. A method for trading a plurality of instruments in a
computerized trading system that receives buy orders and sell
orders for an instrument, the method comprising: Measuring with at
least one server computer an imbalance between the buy orders and
sell orders for the instrument received over a given period, the
buy and seller orders received from at least a first computer
associated with a first trader and a second computer associated
with a second trader, each of the first and second computers
coupled to the at least one server computer over a communication
network; Computing with at least one server computer a projected
price movement based on the measured imbalance between the number
of buy and sell orders; setting a market price for the instrument
based upon the received buy and sell orders and the measured
imbalance; automatically generating additional buy orders or sell
orders for the instrument at the market price to guarantee
execution of some or all of the received buy or sell orders;
generating an electronic currency to execute the buy or sell
orders; crediting a first trader's account with proceeds in the
electronic currency for the executed sell orders by the first
trader; and debiting a second trader's account in the electronic
currency for the executed buy orders by the second trader.
2. The method according to claim 1, further comprising exchanging
the electronic currency in the first or second trader's account for
desired currency.
3. The method according to claim 2, wherein the electronic currency
is exchanged at a currency exchange web site, and wherein a request
for the exchange is transmitted to the currency exchange web site
via a secured communication.
4. The method according to claim 1, further comprising purchasing
goods or services using the electronic currency in the first or
second trader's account, the goods or services being offered for
sale by an on-line vendor via a web site on the Internet.
5. The method according to claim 4, wherein a request for the
purchase is transmitted to the vendor's web site via a secured
communication.
6. The method according to claim 4, wherein the vendor debits the
first or second trader's account in the electronic currency for the
purchase of goods or services via a secured communication.
7. The method according to claim 1, wherein the additional buy
orders or sell orders for the instrument are automatically
generated at the market price if the projected price movement is
greater than or equals a predetermined price movement
threshold.
8. A computerized trading system for trading a plurality of
instruments via buy orders and sell orders, comprising at least one
server computer comprising program code that when executed causes
the at least one server computer to perform a method comprising:
measuring an imbalance between the buy orders and sell orders for
an instrument received over a given period, the buy and seller
orders received from at least a first computer associated with a
first trader and a second computer associated with a second trader,
each of the first and second computers coupled to the at least one
server computer over a communication network; computing a projected
price movement based on the measured imbalance between the number
of buy and sell orders; setting a market price for the instrument
based upon the received buy and sell orders and the measured
imbalance; automatically generating additional buy orders or sell
orders for the instrument at the market price to guarantee
execution of some or all of the received buy or sell orders;
generating an electronic currency to execute the buy and sell
orders; and crediting a first trader's account with proceeds in the
electronic currency for the executed sell orders by the first
trader and debiting a second trader's account in the electronic
currency for the executed buy orders by the second trader.
9. The system according to claim 8, the program code causes the at
least one server computer to perform the method that further
comprises exchanging the electronic currency in the first or second
trader's account for desired currency.
10. The system according to claim 8, the program code causes the at
least one server computer to perform the method that further
comprises purchasing goods or services using the electronic
currency in the first or second trader's account, the goods or
services being offered for sale by an on-line vendor via a web site
on the Internet.
11. The system according to claim 8, wherein the additional buy
orders or sell orders for the instrument are automatically
generated at the market price if the projected price movement is
greater than or equals a predetermined price movement
threshold.
12. A computer-readable storage medium for storing program code,
that when executed, causes at least one server computer to perform
a method for trading a plurality of instruments in a computerized
trading system that receives buy orders and sell orders for an
instrument, the method comprising: measuring an imbalance between
the buy orders and sell orders for the instrument received over a
given period, the buy and seller orders received from at least a
first computer associated with a first trader and a second computer
associated with a second trader, each of the first and second
computers coupled to the at least one server computer over a
communication network; computing a projected price movement based
on the measured imbalance between the number of buy and sell
orders; setting a market price for the instrument based upon the
received buy and sell orders and the measured imbalance;
automatically generating additional buy orders or sell orders for
the instrument at the market price to guarantee execution of some
or all of the received buy or sell orders; generating an electronic
currency to execute the buy or sell orders; crediting a first
trader's account with proceeds in the electronic currency for the
executed sell orders by the first trader; and debiting a second
trader's account in the electronic currency for the executed buy
orders by the second trader.
13. The computer-readable storage medium according to claim 12, the
method further comprising exchanging the electronic currency in the
first or second trader's account for desired currency.
14. The computer-readable storage medium according to claim 12, the
method further comprising purchasing goods or services using the
electronic currency in the first or second trader's account, the
goods or services being offered for sale by on-line vendor via a
web site on the Internet.
15. The computer-readable storage medium according to claim 12,
where in the additional buy orders or sell orders for the
instrument are automatically generated at the market price if the
projected price movement is greater than or equals a predetermined
price movement threshold.
Description
COPYRIGHT NOTICE
A portion of the disclosure of this patent document contains
material which is subject to copyright protection. The copyright
owner has no objection to the facsimile reproduction by anyone of
the patent document or of the patent disclosure as it appears in
the Patent and Trademark Office patent files or records, but
otherwise reserves all copyright rights whatsoever.
BACKGROUND OF THE INVENTION
This invention relates in general to computer-implemented financial
systems, and in particular to an improved automated securities
trading system.
Computer-implemented securities trading systems are well known in
the art. One such system is that disclosed in U.S. Pat. No.
4,674,044, issued to Kalmus et al., entitled "Automated Securities
Trading System", and incorporated by reference herein. These
computer-implemented securities trading systems obtain bid and
asked trades based on the bid and asked prices. However, there is
generally still a human component to such systems.
For example, most financial markets also employ one or more market
makers called "specialists." These specialists fill customer orders
from the specialist's inventory position if there are no matches
for the customer orders in the open market. In the prior art, the
specialist function is not automated, but is performed by a firm or
individual. Thus there is a need in the art for an improved
computer-implemented trading system that includes an automated
specialist function to create a market for the securities traded
and to lessen the volatility of smaller securities markets.
BRIEF SUMMARY OF THE INVENTION
The above need is met by a method for trading instruments in a
computerized trading system that receives buy orders and sell
orders for an instrument. According to the present invention, an
imbalance between the buy orders and sell orders is measured for
the instrument received over a given period. Based on the measured
imbalance between the number of buy and sell orders, a projected
price movement is computed. A market price for the instrument is
then set based upon the received buy and sell orders and the
measured imbalance. To guarantee execution of some or all of the
received buy or sell orders, additional buy orders or sell orders
for the instrument are automatically generated at the market price.
An electronic currency is generated to execute the buy and sell
orders such that a first trader's account is credited with proceeds
in the electronic currency for the executed sell orders by the
first trader and a second trader's account is debited in the
electronic currency for the executed buy orders by the second
trader.
In accordance with one aspect of the present invention, the
electronic currency is Hollywood dollars. The Hollywood dollars in
the first or second trader's account may be exchanged for desired
currency.
In accordance with another aspect of the present invention, goods
or services are purchased using the Hollywood dollars in the first
or second trader's account. The goods or services are offered for
sale by an on-line vendor via a web site on the Internet.
BRIEF DESCRIPTION OF THE DRAWINGS
Referring now to the drawings in which like reference numbers
represent corresponding parts throughout:
FIG. 1 shows a block diagram of an exemplary hardware environment
of the present invention;
FIG. 2 shows a flowchart illustrating the general logic of a first
embodiment of the present invention;
FIG. 3 shows a flowchart illustrating the logic of the
pricing/trading program of the first embodiment of the present
invention;
FIG. 4 shows a flowchart illustrating the logic of the generate
market price program of the first embodiment of the present
invention;
FIG. 5 shows a flow diagram illustrating the logic of the virtual
specialist program of the first embodiment of the present
invention;
FIG. 6 shows a flow diagram illustrating the logic of the stop
trading program of the first embodiment of the present
invention;
FIG. 7 shows a flowchart for using virtual currency in e-commerce
in accordance with one embodiment of the present invention;
FIG. 8 shows a flowchart for using the virtual currency in
e-commerce in accordance with another embodiment of the present
invention;
FIG. 9 shows a flowchart for using the virtual currency in
e-commerce in accordance with yet another embodiment of the present
invention; and
FIG. 10 shows a flowchart for using the virtual currency in
e-commerce in accordance with still another embodiment of the
present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
According to the present invention, a computer-implemented trading
system is provided for derivative financial instruments. The
computer-implemented trading system accepts buy and sell orders
from traders for the derivative financial instruments, sets a
market price based on the supply and demand, and participates in
the market as a trader in order to minimize price volatility. One
embodiment of the present invention is a computer-implemented
Hollywood Stock Exchange (HSX), which may be implemented as a
simulation (i.e., game) or as an actual trading system for
derivative financial instruments representing movies, talent, CDs,
and television programs. These derivatives could be purchased with
virtual currency known as Hollywood dollars (H$) which are
controlled by a virtual reserve bank program.
In one representative embodiment of the present invention, the
derivative financial instruments are identified by a Current
Trading List displayed for the traders that comprises a list of
movies in various stages of production, talent, and other
entertainment-oriented assets. The list contains: name of the
derivative financial instrument; genre of the movie
(action-adventure, mystery, western, comedy, etc.); production
status (scripting, pre-production, filming, editing, release,
home-video, etc.); number of shares in circulation; last trading
price (printed every 15 minutes) price movement (i.e. +/-H$) since
the previous midnight (PST); price movement since the previous
mid-day; price movement year to date;
Traders can view the list sorted by:
name, alphabetically; genre, alphabetically; productions status,
alphabetically; most active (number of shares traded
yesterday);
biggest gainers;
biggest losers; and
fastest movers today (e.g., fastest 20 movers up and fastest 20
movers down).
Similar information would be provided for other derivative
financial instruments offered on the Hollywood Stock Exchange.
Each trader's portfolio is identified by a Portfolio data structure
that comprises the trader's account status. This information
includes: the amount of cash in the trader's account (paid interest
at the system discount rate plus some increment, compounded
daily);
current percentage rate paid on cash balances;
the total value of held stocks at the last selling price;
the total value of held bonds at the last selling price;
total portfolio value (TPV) (cash+bonds+stocks);
percentage of TPV in cash;
percentage of TPV in bonds; and
percentage of TPV in stocks.
Traders can generate any number of different reports for display,
including:
lists of stocks and bonds being traded (see above); index of total
Hollywood stocks (HSXI) expressed as a number, with 1000 defined as
the aggregate total stock price value on opening day, wherein
HSXI=(today's gross stock-value)/(opening day gross stock-value);
index of total Hollywood bonds (HBXI) expressed as a number, with
1000 defined as the aggregate total bond price value on opening
day, wherein HBXI=((today's gross bond-value)/(opening day gross
bond-value)); index of total Hollywood Stock Exchange (HMXI)
comprised of all stocks and bonds, and expressed as a number, with
1000 as the aggregate total stock price value on opening, wherein
HMXI=((today's gross market-value)/(opening day gross
market-value)); lists of the top market performers, e.g., the top
10 traders in percentage portfolio growth calculated as net
portfolio value-change=(% change of cash)+(% change of stocks)+(%
change of bonds), and for each of the categories: yesterday
(midnight to midnight), last week (7 days, ending midnight, each
Thursday), last month (closes at midnight last calendar day of
month), last quarter (closes at midnight on last day of last
month/quarter), year-to-date (running daily total of percentage
value changes)/(days for year-to-date), and annually (closes at
midnight on December 31 each year);
overall market condition report, including a list of stopped issues
with:
name; last trading price;
time that stop-trade condition occurred;
percentage the issue actually moved on-the-day before the
stop-trade;
number of total shares and/or bonds traded today;
dollar value of total trades today;
number of buy and sell trades today; and
number of buy and sell trades this month.
Use of the above information guides traders in making future buy
and sell orders.
With reference to FIG. 1, a block diagram illustrates an exemplary
hardware environment for one embodiment of the present invention.
More particularly, a typical distributed computer system is
illustrated, which uses the Internet 10 to connect client computers
12 executing for example, Web browsers, to server computers 14
executing a computer program embodying the present invention. A
typical combination of resources may include client computers 12
that are personal computers or work stations connected via the
Internet 10 to server computers 14 that are personal computers,
work stations, minicomputers, or mainframes.
Generally, both the client computers 12 and the server computers 14
are comprised of one or more CPUs 16, various amounts of RAM
storing computer programs 20 and other data, and other components
typically found in computers. In addition, both the client
computers 12 and the server computers 14 may include one or more
monitors, and fixed or removable data storage devices 20 such as
hard disk drives, floppy disk drives, and/or CD-ROM drives. Also,
input devices, such as mouse pointing devices and keyboards, may be
included.
Both the client computers 12 and the server computers 14 operate
under the control of an operating system, such as Windows,
Macintosh, UNIX, etc. Further, both the client computers 12 and the
server computers 14 each execute one or more computer programs 18
under the control of their respective operating systems. The
present invention is preferably implemented as one or more computer
programs 18 executed by the server computer 14, although in
alternative embodiments these computer programs 18 may also be
executed on the client computer 12.
Generally, the computer programs 18 implementing the present
invention are tangibly embodied in a computer-readable medium,
e.g., one or more of the fixed and/or removable data storage
devices 20 attached to the computer. Under control of the operating
system, the computer programs 18 may be loaded from the data
storage devices 20 into the RAM of the computer for subsequent
execution by the CPU 16. The computer programs 18 comprise
instructions which, when read and executed by the computer, causes
the computer to perform the steps necessary to execute the steps or
elements of the present invention.
Those skilled in the art will recognize that the exemplary
environment illustrated in FIG. 1 is not intended to limit the
present invention. Indeed, those skilled in the art will recognize
that other alternative hardware environments may be used without
departing from the scope of the present invention.
With reference to FIG. 2, a flowchart illustrates the general logic
of one embodiment of the present invention. Block 200 represents
the server computer 14 waiting for the next event to occur. Once
the event occurs, control is transferred to blocks 202-224 to
identify the event and respond accordingly.
Block 202 is a decision block that represents the server computer
14 determining whether it received a request to display data from
the client computer 12. If so, block 204 represents the server
computer 14 transmitting data to the client computer 12 for
subsequent display. The data transmitted for display preferably
includes at least three types of data: the current list of trading
derivative financial instruments, the trader's portfolio, and other
reports generated by the server computer 14.
Block 206 is a decision block that represents the server computer
14 determining whether it received a request to submit a buy order
from the client computer 12 for a particular derivative financial
instrument, e.g., stock or bond. If so, block 208 represents the
server computer 14 processing the buy order by placing it in a
queue in the memory of the server computer 14. The buy order is a
data structure comprising: trader's account number; trader's name;
the time and date of the order; the stock or bond to buy; the cash
balance in the trader's account; and a text-field where the trader
may enter the total number to buy (generally in multiples of
100).
In one embodiment of the present invention, the buy order waits in
the queue for the expiration of a predetermined "sweep pricing
cycle." The sweep pricing cycle occurs periodically, such as every
15 minutes, or during another specified time interval. The market
price the trader actually pays for the derivative financial
instrument is determined by the aggregate supply/demand for the
derivative financial instrument at the end of the sweep pricing
cycle during which the order was placed.
The market price is set by the pricing/trading program executed by
the server computer, which is described below in FIG. 3. The
trader's account is then charged the market price for the
derivative financial instrument. If the purchase uses up all
available cash in the trader's account, the trader is "loaned"
enough money to pay for the purchase, and their account is charged
interest at a predetermined rate, e.g., 18% a year compounded
daily, on the negative account balance. The interest is charged
against the trader's account until they accumulate more cash to
zero out the balance, either by selling stocks or buying
dollars.
Block 210 is a decision block that represents the server computer
14 determining whether it received a request to submit a sell order
from the client computer 12. If so, block 212 represents the server
computer 14 processing the sell order by placing it in queue in the
memory of the server computer 14. The sell order is a data
structure comprising: trader's account number; trader's name; the
time and date of the order; the stock or bond to sell; the amount
of the stock or bond in the trader's account; and a text-field
where the trader may enter the total number to sell (generally in
multiples of 100).
Like the buy order, the sell order waits in the queue for the
expiration of the predetermined sweep pricing cycle. The market
price at which the trader actually sells the derivative financial
instrument is determined by the aggregate supply/demand for the
derivative financial instrument at the end of the sweep pricing
cycle during which the order was placed. The market price is set by
the pricing/trading program executed by the server computer, which
is described below in FIG. 3. The trader's account is then credited
with the market price for the derivative financial instrument.
The sell order can be either produced by a trader or generated by
the server computer 14, as will be explained in more detail below.
For a sell order produced by a trader, he views his list of stocks
or bonds on a monitor attached to the client computer and chooses
to sell a quantity at the market price.
When the trader requests to view the list of stocks, the server
computer 14 transmits certain information to the client computer 12
for display, including, for each stock owned, the last trading
price (LTP), the quantity of stocks, the purchase price, and the
date purchased, Similarly, when viewing the list of bonds, the
server computer 14 transmits certain information to the client
computer 12 for display, including, for each bond owned, the last
trading price (LTP), the interest rate being earned for each kind
of bond, the quantity of bonds, the purchase price, and the date
purchased.
Block 214 is a decision block that represents the server computer
14 determining whether an internal timer for the sweep pricing
cycle has expired. If so, block 216 represents the server computer
14 executing a pricing/trading program as described in FIG. 3.
Block 218 is a decision block that represents the server computer
14 determining whether it received a request to change the discount
rate. If so, block 220 represents the server computer 14 executing
a discount rate program. In order to add or subtract liquidity, the
server computer 14 occasionally steps in to act as a virtual
reserve bank program and adjust the discount rate. The discount
rate is adjusted based on the performance of the specific industry
of the market. For the Hollywood Stock Exchange, the discount rate
is adjusted to add or subtract liquidity to affect the growth of
the entertainment industry. When the server computer 14 lowers the
discount, all the bonds seem to be a better deal, because the bonds
are paying a fixed rate interest that never changes. This
encourages traders to buy more bonds, and such surge in buying
demand causes a correlated increase in bond prices as described
above. The same thing happens to stocks, because traders are making
less money on the interest being paid on the cash balance in their
trading account. When the server computer 14 raises the discount
rate, the bonds seem to be a worse deal, since their advantage over
the discount is smaller. Thus, the server computer 14 relaxes the
buying pressures or demands for bonds, which should result in
additional sell orders, or at least slow the buying of bonds, thus
decreasing their prices as they trade in the market. Likewise,
stocks seem less attractive, since traders could make more money by
keeping cash in their accounts and getting interest on it.
Block 222 is a decision block that represents the server computer
14 determining whether it received a request to revise the
derivative list. If so, block 224 represents the server computer 14
executing a listing program. The server computer 14 determines
whether the list of derivatives trading in the system should be
revised. The list could be revised to reflect new derivative
offerings, expired derivatives, and delisted derivatives.
When a new derivative is offered, the price is based on the
derivative's potential value. For example, for a new stock
offering, which represents a movie on the Hollywood Stock Exchange,
the initial price of the stock could be based on the movie's
potential box office revenue. For a bond offering, which represents
talent on the Hollywood Bond Exchange, the price of the bond could
be based on the Hollywood Reporter's Star Power Index. A bond
representing a talent with a low Star Power Index of 15 would be
issued with a higher yield than a bond representing a talent with a
high Star Power Index rating.
A warrant with a strike price is attached to the new derivative
when it is offered. When the derivative and warrant are first
issued, the warrant is of no value until the strike price is
reached. For a stock, the strike price could be reached after the
movie has grossed a certain level of revenue. When a derivative is
delisted from the exchange, a stock due to the movie ending its
production run or a talent due to retirement or death, for example,
the warrants are called and the traders are paid the value of the
warrants, thus providing off-balance sheet financing for
studios.
With reference to FIG. 3, a flowchart illustrating the logic of the
pricing/trading program of the present invention is shown. Block
300 represents the server computer 14 retrieving the buy and sell
orders that have accumulated in the queue during the period since
the prior sweep pricing cycle. Block 302 represents the server
computer 14 matching the buy orders with the sell orders, although
it is likely than an identical number of buy and sell orders would
not have accumulated in the queue during the period. Block 304
represents the server computer 14 executing the generate market
price program described in FIG. 4 to determine the market price for
the derivative financial instruments. After the market price is
determined, block 306 represents the server computer 14 updating
the traders' portfolios to reflect the buy and sell orders in the
queue being processed at the market price. Block 308 represents the
end of the pricing/trading program.
With reference to FIG. 4, a flowchart illustrating the logic of the
generate market price program of the present invention is shown.
One purpose of the generate market price logic is to generate a
market price for a derivative financial instrument that reflects
the demand or lack of demand for the derivative financial
instrument in the market. Block 400 represents the server computer
14 measuring the imbalance between the buy and sell orders during
the period since the prior sweep pricing cycle. Block 402
represents the server computer 14 determining the price movement of
a derivative financial instrument caused by the imbalance in buy
and sell orders. Block 404 represents the server computer 14
executing a virtual specialist program as described in FIG. 5 to
provide stability and liquidity to the market. Block 406 represents
the server computer 14 executing the stop trade program, as
described in FIG. 6, to stop trading in a derivative financial
instrument if the projected price movement is excessive during the
trading day and threatens the integrity of the market for that
instrument. Block 408 represents the server computer 14 setting the
market price, which becomes the price the pricing/trading program
uses to update the traders' portfolios. Block 410 represents the
end of the generate market price program.
In measuring the imbalance between buy and sell orders, as
represented by block 400, the absolute difference between the
number of sells and the number of buys is defined as the net
movement in sweep (NMS). A sweep increment variable (SIV) is
defined as the increase or decrease in price caused by an
incremental imbalance in the number of buy orders and sell orders.
A lot movement variable (LMV) represents the incremental lot size
that will result in a price increase or decrease of one SIV. The
projected price movement (PM) can be expressed as:
PM=(NMS/LMV)*SIV.
For example, with 42,000 buy orders and 30,000 sell orders for a
particular stock, the NMS=(42,000-30,000)=12,000. With SIV=$0.25
and LMV=5000, the price movement of the particular stock will be
(12,000/5,000)*0.25=$0.50. Thus, the market price of the particular
stock will be $0.50 greater than the last trading price.
With such pricing scheme, there is the potential for great
volatility in the price of a derivative financial instrument and
the eventual loss of investor confidence in the market mechanism.
In exchanges such as the Hollywood Stock Exchange, it would be
possible for one or more individuals to pursue trading strategies
that would purposely cause drastic price fluctuations.
In order to encourage growth and stability in the capital market
regulated by the trading system of the present invention, a virtual
specialist program is executed by the server computer, as
represented by block 404 in FIG. 4. In executing the virtual
specialist program, the server computer 14 regulates the trading by
actively trading in the market out of a virtual specialist
portfolio (VSP). In one embodiment of the present invention, the
virtual specialist program portfolio initially contains half of all
the issued shares of each derivative financial instrument.
With reference to FIG. 5, a flow diagram illustrating the logic of
the virtual specialist program of the present invention is shown.
Block 500 is a decision block that represents the server computer
14 determining whether the price movement during the sweep pricing
cycle is greater or equal to an adjusted price movement threshold
(APT). The APT is a constant in the memory of the server computer
14. If the APT is greater than the price movement, then the server
computer 14 does not trade in the market. If the price movement is
greater than or equal to the APT, then the server computer 14
trades out of a virtual specialist program portfolio. The level of
trading by the server computer 14 is determined by the amount that
the price movement exceeded the APT. The greater the price
movement, the more shares the server computer 14 trades to offset
the price movement.
In an exemplary embodiment of the present invention, the ATP=1.25
and the server computer 14 performs the following steps: if PM=APT
then the server computer 14 matches 10% of unmatched shares; if
PM=APT+0.25 then the server computer 14 matches 20% of unmatched
shares; if PM=APT+0.50 then the server computer 14 matches 30% of
unmatched shares; if PM=APT+0.75 then the server computer 14
matches 40% of unmatched shares; if PM=APT+1.0 then the server
computer 14 matches 50% of unmatched shares; if PM=APT+1.25 then
the server computer 14 matches 60% of unmatched shares; if
PM=APT+1.50 then the server computer 14 matches 70% of unmatched
shares; if PM=APT+1.75 then the server computer 14 matches 80% of
unmatched shares.
Block 502 represents the server computer 14 generating a buy or a
sell order to offset the price movement. The buy or sell order
generated by the server computer 14 is placed in the queue with the
trader buy and sell orders to be processed during the next sweep
cycle.
In one embodiment of the present invention, since the virtual
specialist program portfolio initially includes half of all the
securities traded, the server computer 14 could eventually deplete
the virtual specialist program portfolio or cause the virtual
specialist program portfolio to own all the shares of a stock. In
order to maintain a balanced virtual specialist program portfolio,
and provide some liquidity to the market, the server computer 14
generates additional buy and sell orders to offset orders generated
in response to the price movement exceeding the APT. Block 504
represents the server computer 14 generating timed buy and sell
orders. In one embodiment of the invention, the server computer 14
assesses each stock and each bond in the virtual specialist program
portfolio. The server computer 14 determines the deficit or surplus
in the item, and then places 1/288.sup.th of the deficit as a
"timed recovery order" into each successive 15 minute segment for
the next 3 days. When the pricing/trading program 255 matches buy
and sell orders as represented by block 320, the pricing/trading
program 255 includes any "timed recovery orders" outstanding for
the last 3 days in the sweep. These orders are matched with the
traders' buy and sell orders. Block 506 represents the end of the
virtual specialist program.
FIG. 6 is a flow diagram illustrating the logic of the stop trading
program of the present invention. Block 600 represents the server
computer 14 determining the price movement of a stock caused by the
imbalance in buy and sell orders. Block 602 represents the server
computer 14 measuring the price movement on the day, not just
during the sweep cycle period. Block 604 is a decision block that
represents the server computer 14 determining whether the net price
movement (NPM) within one "trading day" (i.e., midnight-midnight)
is greater than 50% up or down. As represented by block 606, the
buy and sell orders are removed from the queue if the net price
movement is greater than 50% for a stock trading above $20. At that
point, the trading in that issue is stopped within the 15 minute
period until further notice. All orders (buy and sell) for that
stock during this sweep are unfilled. The trading has stopped due
to "excessive order imbalance".
For example, let it be assumed that the Last Trading Price (LTP)
for "Rambo-17" is $67 (+7.5 on-the-day). During one 15-minute sweep
pricing cycle, the server computer 24 receives buy orders for
655,000 shares of "Rambo-17". In addition, the server computer 14
receives sell orders for 35,000 shares of "Rambo-17" during the
same sweep pricing cycle. The server computer 14 evaluates the
price movement for the sweep pricing cycle, and tests it to see if
the net projected price movement "on-the-day" is greater than 50%.
If it would be greater than 50%, it stops trading in that
instrument only. In this example, there is a net order-imbalance of
620,000 shares, which would create an up movement in price of
(+620,000/5000)*$0.25=+$31.00. Since the total movement on the day
would be the $7.50 so far plus the additional $31.00, the net
projected price movement on the day would be $31.00+$7.50=$38.50.
If the opening price that day was $59.50, the percentage projected
price movement for the day is $38.50/$59.50=64%. Since the
projected net price movement would be greater than 50%, the trading
is stopped for that instrument. If the projected price movement was
less than 50%, the price of the instrument would be adjusted
accordingly and trade in that stock continued. Block 608 represents
the STOP TRADE order that issues regarding the particular stock.
Traders who issued a buy or sell order for the stock are notified
that the order has not been filled due to excessive order imbalance
during the trading day. Finally, block 610 represents the end of
the stop trading program.
As mentioned above, according to the present invention derivative
securities are traded in electronic or virtual currency known as
Hollywood dollars (H$) on the exchange. When a customer opens an
account with HSX, Inc. by logging on the HSX web site and
registering his information, he is given an initial amount of
virtual currency to trade on Hollywood Stock Exchange. For example,
the initial trading portfolio may include cash in the amount of H$2
Million for the registered HSX account holders. The issuance of
money to the newly registered HSX account holders is controlled by
the virtual reserve bank program. By trading in derivative
securities (stock, bonds, options, etc.), the HSX account holder
either increases or decreases the total value of his portfolio
measured in Hollywood dollars and comprised of various securities
(debt and equity) and cash (money market funds). Of course, trading
on margin results in negative amounts debited to his portfolio, and
any proceeds from selling activities are swept into the money
market fund to add to the cash portion.
After successfully trading on the exchange, the HSX account holder
may significantly increase the value of his portfolio. The HSX
account holder may sell some or all of the securities and
accumulate vast amount of Hollywood dollars. Alternatively, the HSX
account holder's cash portion of the portfolio may be quite large
by itself, without the need to sell his securities. In accordance
with one aspect of the present invention and as shown in block 700
of FIG. 7, the HSX account holder may access a vendor's web site
for currency exchange to convert the cash portion of his portfolio
to "real" currency. The HSX account holder logs onto the web site
dealing in currency exchange and requests the conversion rate for
Hollywood dollars. In block 702 the HSX account holder obtains the
exchange rate and decides, in block 704, whether to proceed with
the transaction by exchanging his accumulated virtual currency (H$)
for a desired type of "real" currency, such as U.S. Dollars, Euros,
Yens, Rubles, etc. If he decides to exchange his Hollywood dollars
for U.S. dollars, for example, the HSX account holder accesses his
trading portfolio with HSX, Inc. over secure Internet
communications link in block 706. In block 708 the HSX account
holder is presented a menu using a graphical user interface for
facilitating the transfer from his account to the currency exchange
web site. The HSX account holder then completes the required fields
in the menu and sends this information to the currency exchange web
site along with the authorization to verify the HSX account
holder's identity and availability of funds in his account.
The operator of the currency exchange web site verifies, via a
secure communication session, the information provided by the HSX
account holder. If the information is accurate as decided in block
710, the HSX account holder's Hollywood dollars are converted to
the requested "real" currency in block 712. And in block 714, the
HSX account holder requests that the funds be delivered in the
requested "real" currency by mail, courier, etc.
Although "real" currency hereinabove refers to the tangible
representation of money, the Internet dominance and its
accompanying e-commerce may blur the boundaries between virtual and
"real" monetary systems. Due to the information overload resulting
from the global networking, people's attention and time becomes
valuable commodity. Thus, as the currency exchange web site
receives the people's attention and increased traffic flow in
return for the "real" currency, this "monetization" of time may be
more valuable than the "real" money. The currency exchange web site
may carry goods and/or services, advertisements, etc. for other
vendors, and by attracting people to the web site because of the
currency exchange, significant financial benefits may be obtained
by the vendor using this strategy of paying small sums for people's
attention and time.
FIG. 8 shows a flowchart for using the virtual currency in
e-commerce in accordance with another embodiment of the present
invention. In block 800, an HSX account holder accesses a vendor's
web site for selling goods and/or services that may be desired by
the HSX account holder. In block 802, the HSX account holder
selects the desired product and/or service on the vendor's web
site. If the desired product and/or service is sold in the virtual
currency (H$), as decided in block 804, then the HSX account holder
accesses his trading portfolio with HSX, Inc. over secure Internet
communications link in block 806. In block 808, the HSX account
holder is presented a menu using a graphical user interface for
facilitating the transfer from his account to the currency exchange
web site, as explained above. The HSX account holder then completes
the required fields in the menu and sends this information to the
vendor's web site along with the authorization to verify the HSX
account holder's identity and availability of funds in the
account.
The vendor then verifies, via a secure communication session, the
information provided by the HSX account holder. If the information
is accurate as determined in block 810, the cost of the desired
product and/or service is debited to the HSX account or,
alternatively, is transferred to the vendor's web site in block
812. And in block 814, the HSX account holder receives an
electronic confirmation of the transaction.
FIG. 9 shows a flowchart for using the virtual currency in
e-commerce in accordance with yet another embodiment of the present
invention. In block 900, an HSX account holder accesses a vendor's
web site for selling goods and/or services. In block 902, a
predetermined amount of H$ is transferred by the HSX account holder
to the vendor's web site via secure communications lines as
described above with reference to FIGS. 7 and 8. Alternatively, the
HSX account may be debited for that predetermined amount in
response to the request from the HSX account holder. In return, the
vendor issues a credit to the HSX account holder toward the
purchase of goods and/or services on the vendor's web site in block
904. The amount of credit is based on the exchange rate established
by the vendor.
In still another embodiment of the present invention, FIG. 10 shows
a flowchart for using the virtual currency in the HSX account in
e-commerce. In block 1000, an official representative of HSX, Inc.
logs on the Web to access a vendor's site for selling goods and/or
services. In block 1002, the HSX, Inc. representative offers the
virtual currency in H$ for redemption by the vendor. In return,
HSX, Inc. receives "real" currency at the exchange rate provided by
the vendor at his web site. In block 1004, an HSX account holder is
informed of a promotion run by the vendor through the vendor's web
site. The HSX account holder may then visit the vendor's web site
to purchase goods and/or services on-line in block 1006. In that
case, HSX, Inc. mails a check to the HSX account holder in a
predetermined amount. The check is in "real" currency and is a
portion of the virtual currency exchange between HSX, Inc. and the
vendor. Alternatively, the converted currency may be retained in
the HSX holder's account as a deposit or credit towards future
purchases on the Internet.
While the invention has been described and illustrated in
connection with preferred embodiments, many variations and
modifications as will be evident to those skilled in this art may
be made without departing from the spirit and scope of the
invention, and the invention is thus not to be limited to the
precise details of methodology or construction set forth above as
such variations and modification are intended to be included within
the scope of the invention.
* * * * *
References